Question

The following information pertains to questions 8, 9, 10

Mr. and Mrs. Smith's first child was just born. The expectation is that in 18 years the child will attend college. The current average cost of one year of college is $18,000. College costs are expected to increase by an average of 6% annually over the next 18 years. The Smith's plan on beginning a college savings plan wherein they will invest the same dollar amount, at the end of each year, for the next 18 years. The expectation is that the invested monies will earn an average annual rate of return of 8%. The back-up plan is to reach into their accumulated savings to date and make a one-time investment, today, with the expectation being to earn an average annual rate of return of 8% over the next 18 years.

8. The forecasted cost of the first year of college (in 18 years) for the child is approximately

___________________

9. In order to have a college savings investment account balance that reaches $80,000 in 18 years the Smith's will need to save the amount of _____________________ annually for 18 years.

10. In order to have a college savings investment account balance that reaches $80,000 in 18 years the Smith's will need to invest the amount nearest to ____________________ today (one time today).

Answer 1

8)

9)

10)